In the London market, the oil prices rose last Thursday, heading for its largest weekly increase in a month, as the market prepared for potential disruption to crude flows from major exporter Iran in the face of US sanctions.

Brent crude futures rose 27 cents to $77.48 a barrel, having gained 3.5 per cent by last Thursday.

US West Texas Intermediate crude futures were up 45 cents at $71.59.

The oil price is at its highest since late 2014 and on track for its fourth consecutive quarterly gain, the longest such stretch for more than 10 years.

Even without disruption to Iran’s crude flows, the balance between supply and demand in the oil market has been tightening steadily, especially in Asia, with top exporter Saudi Arabia and No.1 producer Russia having led efforts since 2017 to cap output to prop up prices.

Saudi Arabia is ready to offset any supply shortage but it will not act alone to fill the gap, an Opec source familiar with the kingdom’s oil thinking said last Wednesday.

Iran is Opec’s third-largest oil producer and currently exports about 2.5 million barrels a day. Renewed sanctions could crimp those shipments at a time when global oil supply and demand have essentially balanced out. That increases the risk that the market could swing into undersupply and send oil prices higher.

The impact of renewed sanctions on oil flows will depend in part on how Washington chooses to implement them.

However, analysts say that lack of international support for renewed US sanctions means the measures will likely only remove 300,000 - 500,000 barrels a day of Iranian crude from the market. That compares with 1 million-1.5 million barrels a day under President Barack Obama.

Prices rose over 2pc after US President Donald Trump confirmed his withdrawal from a 2015 deal that had eased sanctions on Iran in exchange for curbs on its nuclear programme.

While futures settled lower last Tuesday, having gained through the previous week before the widely anticipated decision, they rallied in after-hours trade and into the Asian morning. Oil was also boosted after a report said American crude stockpiles dropped last week.

While Saudi Arabia, which is said to be aiming for oil at about $80 a barrel, said it’s ready to minimise the effect of sanctions on the market, the world’s largest crude exporter didn’t say whether it would boost output.

While the world ponders the fate of Iran’s exports, the oil market is exposed more than ever to the effects of Venezuela’s spectacular production collapse.

The South American nation, holder of the world’s biggest oil reserves, has seen its output fall almost 40pc since 2015, to 1.5m barrels a day, amid political turmoil and an economic meltdown under President Nicolas Maduro.

With global creditors circling Venezuelan oil assets and the US considering more sanctions, production could drop further, to 1m barrels daily by year’s end.

The demise of Opec’s eighth largest producer has helped trim a global surplus, pushing prices to their highest in more than three years. But it’s also left less of a cushion to deal with further declines, now that US President Donald Trump is exiting the Iran nuclear-arms deal and re-imposing sanctions.

Gold

In the London market, gold edged higher last Thursday as the dollar paused for breath, holding near its 2018 peak, with investors focused on US inflation data due later and simmering tensions between the United States and Iran.

The dollar slipped slightly from a 4-1/2 month peak hit as long-term US Treasury yields held near the psychologically important 3pc level. A strong dollar makes dollar-priced gold costlier for non-US investors.

Spot gold rose by 0.2 percent to $1,315.28 an ounce. US gold futures for June delivery were also up 0.2pc at $1,315.50.

After reduced growth data in the euro zone and Britain in recent weeks, the Fed remains the only major central bank that appears to be on course for rate increases.

Elsewhere, North American gold-backed exchange-traded funds registered inflows in April at their highest level since September 2017, with safe-haven purchases ushered in by a trade stand-off between the United States and China, Syria tensions and worries about possible US sanctions on Russia.

In the New York /London market, gold prices dipped a day earlier, as safe-haven buying failed to kick in after the United States withdrew from the Iranian nuclear accord, and as rising US Treasury yields added pressure.

Gold prices often rise during times of political turmoil, as bullion is widely considered a safe-haven asset alongside the dollar and the Japanese yen.

Also weighing on gold, geopolitical tensions in the Korean peninsula eased further as North Korea freed three American detainees ahead of talks between Trump and North Korea leader Kim Jong Un.

The dollar index rose to a 2018 peak, then went into negative territory after US producer prices rose less than expected.

Iran’s gold demand will probably be “strong” for the next few months and then gradually decline as US sanctions start to take effect, according to the researcher who covers the country for Metals Focus Ltd.

US sanctions on Iran’s gold trade will be re-imposed after 90 days, according to the US Department of the Treasury.

Gold in 2018 will deliver its strongest annual price performance in five years, GFMS analysts forecast recently, as political uncertainty drives investment in bars and bullion-backed investment funds.

The GFMS metals research team, predicted gold would average $1,360 an ounce this year, up 8 percent from 2017, with some short-term moves towards $1,500.

Gold has not risen above that level since early 2013.

The team expected demand by exchange traded funds (ETFs) to rebound this year to 350 tonnes.

Published in Dawn, The Business and Finance Weekly, May 14th, 2018